Uncertainty and allocation decisions involving unique environmental resources

V. Kerry Smith

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

The implications of the treatment of uncertainty in the definition of optimal investment criteria for irreversible allocations of unique environmental resources are considered herein. This analysis argues that the single-project, orientation of conventional cost-benefit analysis can lead to inconsistent decisions because it fails to take account of the potential for risk pooling across projects. In the models discussed in this paper uncertainty arises because the planner must estimate the net benefits associated with a mix of developed and preserved natural environments. The results suggest that the criteria for optimal investment plans will be affected by those factors influencing this uncertainty. Both the scale and timing of optimal investments may be altered from those prescribed with the conventional (Fisher-Krutilla-Cicchetti rule) framework when the potential for risk pooling is introduced. Thus, it is important to consider as a part of the specification of the objective function the factors which give rise to uncertainty.

Original languageEnglish (US)
Pages (from-to)175-186
Number of pages12
JournalJournal of Environmental Economics and Management
Volume6
Issue number3
DOIs
StatePublished - 1979
Externally publishedYes

Fingerprint

resource
cost-benefit analysis
decision
allocation
Uncertainty
Resources
Optimal investment
project
Risk pooling
natural environment
analysis
plan
Factors
Investment criteria
Cost-benefit analysis
Influencing factors
Natural environment
Objective function

ASJC Scopus subject areas

  • Economics and Econometrics
  • Management, Monitoring, Policy and Law
  • Environmental Science(all)
  • Earth and Planetary Sciences(all)

Cite this

Uncertainty and allocation decisions involving unique environmental resources. / Kerry Smith, V.

In: Journal of Environmental Economics and Management, Vol. 6, No. 3, 1979, p. 175-186.

Research output: Contribution to journalArticle

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